I notice on Stockpedia Charles Mitchell posted a list of funds in the process of realising assets. Comparing ASLI with ADIG also Abrdn on the face of it ADIG offers a better return. Why ASLI compared to ADIG?
Agree. I can't see how you'd lose money at 60p and the main issue is what annualised return you will end up with. My lesson from FEET, even though it had much more liquid investments than ASLI, was that these things always seem to take longer than initially planned and end up costing more. The best solution would be a complete take out by an acquirer, as I said yesterday. The only point I'm trying to make is that the longer it goes on the more risk there is that the NAV will move against you. I know you understand this but there are a mix of investors of varying levels of experience here, and they may not have thought it through.
BTW I couldn't understand why the directors were not buying when I last looked at ASLI. Are management not able to buy at this time? Last director buy I can see was 18 months ago. If not, why are they not filling their pockets with pond coins priced at 75p?
I keep trying to reply to your post below but Substack is screwed for some reason.
I only mentioned FEET because there were a couple of things that happened in between announcing the liquidation in mid September 2022 and the first payment 3 months later. Firstly, the underlying equities decreased in value and this was then exacerbated by adverse currency movements. So the total amount returned was less than the NAV at the time the liquidation was announced. Both of these issues could affect the final amount returned by ASLI. If interest rates are lowered, it will reduce the discount rate used to calculate the EPRA NAV and any EUR/GBP movement will also have an effect, although this could work both ways. Worth bearing in mind. Having said that, there seems to be a good safety of margin with ASLI.
The good news on FEET was that 96% was returned in the first payment, another 2.5% nine months later and the final balancing payment only last month; the latter due to an Indian tax issue.
I think this actually helps the case for ASLI. As you say, the FEET assets were listed investments in quite volatile securities. Whilst it was easy to liquidate, everything was reliant on doing at the right time. Once done, however, most of the money came back quickly. ASLI assets are much less volatile, and it'll take a lot to lose money at sub 60p
I tried to bust the thesis by looking for risks around refinancing commercial property debt. Two articles were dated February, one fairly doomy (Grant Thornton, "Financing headwinds for commercial real estate") and one optimistic (abrdn investments, "UK real estate market outlook Q1 2024"; biased?). A search limited to July and later got results that were nearly all about Europe, mostly about research from AEW (a UK REIT I hold), and positive, like "AEW research shows European real estate debt funding gap reduces to €86 billion as refinancing challenges ease" (Natixis, 9 Nov). I think no (recent) news is probably good news, and my little bit of research hasn't dented the thesis.
Thanks for the reply. I was thinking that if there was a general problem with refinancing commercial property debt, it would soften the market that ASLI needs to sell into. That's independent of ASLI's debt, but I couldn't make the premise stand up anyway.
I enjoyed reading this and it has given me an idea.
We know that Paul is a very good analyst - no doubt about that.
It would be interesting to have share pitches like this accompanied by a dispassionate analysis from Paul.
I'm sure Paul has quite a few investors who might be willing to write a pitch and let Paul analyse it, and I suspect there are a few members here who would be willing to chip in. We could perhaps try one a week to see if the idea works.
I think anyone who has put forward an idea should welcome views on it, even if they are negative. Everyone on here has been unfailingly polite - maybe even too polite! - but I’d like to think that all negative points should have answer or, failing that, an acknowledgment of its validity.
Definitely! My vision for this site is to expand it into lots of curated articles, by smart investors, on top of my own daily reports. Then discussion amongst the community.
Was got the ball rolling this weekend, with an excellent article in a very interesting niche of REITs.
Thanks for bringing this to our attention and great to see you’ll be posting on Paul’s Substack.
I already hold several REIT’s for this very reason and for the really attractive dividends. Progress can be slow at times and a lot of them are down due to interest rates not falling fast enough and far enough. Although the REIT’s are not like to fold and the dividends are high. I’m tempted to recycle some money into this one and hope for a decent fairly quick outcome, so I can repeat the process.
There is loads of value in the REITs and IT sector, whether the companies are folding up or not. The situation has caused me to temporarily focus on equities again after years of specialising in the distressed debt market.
There is a very good Investment Trusts thread on Stockopedia (subscription site, if you’re not aware) which is renewed each month. By that I mean the thread is restarted every month. There are some SS situations like this mentioned each month. There are also lots of IT trusts mentioned at huge 20-30%+ discounts to NAV. REIT’s also features heavily on the threads with the Mitchell’s (2 x posters) who are very knowledgeable and invest in lots of Trusts of all sorts. Hope to see you there sometime.
In short, a similar situation arose very recently with API, another abrdn fund which decided to close itself down. Things have resolved themselves very quickly after they decided to liquidate, speeded up by the fact that they’ve accepted a takeover offer to speed things up. I was very pleased to see it, having invested earlier this year at 52p. The same Fund Manager is involved here, and they may well accelerate things again if approached.
Another one that has worked out really well is GABI, as the Board have done an excellent job in returning capital. I’m also invested in RESI recently as they have made a similar move to close themselves.
The point you make about Fundsmith being tardy is clearly valid (I know nothing about it though) but I did notice you said you only received the FINAL payment just recently.
I’ve tried to keep things simple with ASLI in the article, but recognise that the reality of the payback schedule will be more staggered. I think it’ll balance out though, and that’s why I’ve said I intend to track the idea to see how expectation matches up to reality.
One example I can give is that 0.77p will be returned very quickly purely as a dividend (it goes ex-div on Thursday) so, straight away, that’s a 1.3% return of capital, which is significant if comparing to gilts.
The other thing I’d say is that we are already 6 months into the process. It really should be wrapped up by the middle of next year so I think I’m being very conservative by giving it until the end of 2025. If the FINAL payment comes through later, I won’t mind that much as long as I have the majority of my money back long before then.
One final point. I haven’t seen the discussion on The Lemon Fool but I also bought some a while ago at 61p, and learned a lesson when the Board informed us that NAV would be reduced by 4.2% to cover the costs of winding down. They really should be able to reach 73p since it’s already been discounted to reflect costs so, again, they’d have to do poorly if not getting at least 70p when taking so long about things.
One of the reasons they gave when initially announcing a wind-down rather than cheap takeover was that they could see lease renewals on the horizon that would add value before selling. That makes sense to me, but they have to deliver on that to justify taking the extra time.
So far, I find their statements very straightforward, and am prone to give them some leeway.
Nice to see you're still around searching for special situations. I remember when we all made out like bandits on UK and US listed bank prefs back in the day on TMF. There's been a thread on TLF since May I've been weakly following (which I assume is an offshoot of a thread on ADVFN) and the investment thesis has been pretty much the same for the past 6 months although the share price is slightly down from 62p when the thread started.
IMO it would be a much more attractive situation if someone just bought the whole damn company, obviously, as was the case with EBOX but that seems off the agenda for now. I agree the risk/reward looks good and it will be difficult to lose money, but as you make clear the timescale for disposal is crucial to the investment case when you can get 4.5% on short dated gilts.
I only mention this as I was burnt by the winding up of Fundsmith Emerging Equities Trust IT (FEET) which is a special situation I spotted in July 2022. You'd think an equity IT containing large liquid investments (albeit listed on overseas markets) would be pretty easy to wind up, especially with the boot of Terry Smith up its backside. BUT I only received the final payment two weeks ago! As you know, the time value of money is very important and I wish I'd sold the lot following the closing of the discount to NAV following the vote for discontinuation.
Is there any precedent for other REITs being broken up in this way rather than sold outright? If so, how long did that take? Anyway, I hope the timescale for asset disposals and return of capital works out for you.
What a brilliant article, thanks Paul & author. Clear, simple explanation of the investment case in straightforward language. I love a good stock pitch and this is one of best I've seen in a while.
Thanks for this Paul. Not the sort of area I invest in but it’s great to see you widening the scope of ideas in your new venture. Enjoy the rest of your weekend.
I see they list 22 properties across 5 countries so that will take a while to dispose of unless they can sell in packages. Sentiment in France for one is poor at present. The properties and tenants do look sound.
Presumably as they sell off properties the dividend will decline, or if maintained be uncovered.
The next ex-div date is Thursday, Dec 5th.
Not sure I have the patience for this wind down (my failing perhaps) but a clean take-out could be attractive.
I sort of alluded to this complication in the article, but quicker sales are to be welcomed as it just means they’ll return capital faster, giver a higher IRR.
They won’t wait until everything is sold before giving cash returns. They said in their latest update that they expected a first redemption in early 2025.
I wouldn’t worry about sentiment either - the NAVs have all been reduced heavily from their peak values already. They are basically selling at near the bottom of the market, which is why bigger players who have less disgruntled shareholders are buying.
Just adding a comment to these excellent investment idea. Price hit 56.5 today (on a downtrend In line with a lot of reits/trusts).
So if you read this article previously you are at a great entry point today
Hi Paul
I notice on Stockpedia Charles Mitchell posted a list of funds in the process of realising assets. Comparing ASLI with ADIG also Abrdn on the face of it ADIG offers a better return. Why ASLI compared to ADIG?
Agree. I can't see how you'd lose money at 60p and the main issue is what annualised return you will end up with. My lesson from FEET, even though it had much more liquid investments than ASLI, was that these things always seem to take longer than initially planned and end up costing more. The best solution would be a complete take out by an acquirer, as I said yesterday. The only point I'm trying to make is that the longer it goes on the more risk there is that the NAV will move against you. I know you understand this but there are a mix of investors of varying levels of experience here, and they may not have thought it through.
BTW I couldn't understand why the directors were not buying when I last looked at ASLI. Are management not able to buy at this time? Last director buy I can see was 18 months ago. If not, why are they not filling their pockets with pond coins priced at 75p?
Hi Wshak,
I keep trying to reply to your post below but Substack is screwed for some reason.
I only mentioned FEET because there were a couple of things that happened in between announcing the liquidation in mid September 2022 and the first payment 3 months later. Firstly, the underlying equities decreased in value and this was then exacerbated by adverse currency movements. So the total amount returned was less than the NAV at the time the liquidation was announced. Both of these issues could affect the final amount returned by ASLI. If interest rates are lowered, it will reduce the discount rate used to calculate the EPRA NAV and any EUR/GBP movement will also have an effect, although this could work both ways. Worth bearing in mind. Having said that, there seems to be a good safety of margin with ASLI.
The good news on FEET was that 96% was returned in the first payment, another 2.5% nine months later and the final balancing payment only last month; the latter due to an Indian tax issue.
All the best, Si
Hi Simoan,
I think this actually helps the case for ASLI. As you say, the FEET assets were listed investments in quite volatile securities. Whilst it was easy to liquidate, everything was reliant on doing at the right time. Once done, however, most of the money came back quickly. ASLI assets are much less volatile, and it'll take a lot to lose money at sub 60p
I've noted that the article has caused some buying in ASLI this morning.
I'd caution anyone against buying into a temporary spike. It'll settle down in due course, I'm sure, after an initial flurry.
Fairly predictable I think given the market cap. Don’t worry, it wasn’t me buying :-)
I tried to bust the thesis by looking for risks around refinancing commercial property debt. Two articles were dated February, one fairly doomy (Grant Thornton, "Financing headwinds for commercial real estate") and one optimistic (abrdn investments, "UK real estate market outlook Q1 2024"; biased?). A search limited to July and later got results that were nearly all about Europe, mostly about research from AEW (a UK REIT I hold), and positive, like "AEW research shows European real estate debt funding gap reduces to €86 billion as refinancing challenges ease" (Natixis, 9 Nov). I think no (recent) news is probably good news, and my little bit of research hasn't dented the thesis.
Hi Hoenir,
These are good assets and debt levels are modest but the cost of debt is very low, so difficult to replace as cheaply.
Thanks for the reply. I was thinking that if there was a general problem with refinancing commercial property debt, it would soften the market that ASLI needs to sell into. That's independent of ASLI's debt, but I couldn't make the premise stand up anyway.
I enjoyed reading this and it has given me an idea.
We know that Paul is a very good analyst - no doubt about that.
It would be interesting to have share pitches like this accompanied by a dispassionate analysis from Paul.
I'm sure Paul has quite a few investors who might be willing to write a pitch and let Paul analyse it, and I suspect there are a few members here who would be willing to chip in. We could perhaps try one a week to see if the idea works.
Hi Michael,
I think anyone who has put forward an idea should welcome views on it, even if they are negative. Everyone on here has been unfailingly polite - maybe even too polite! - but I’d like to think that all negative points should have answer or, failing that, an acknowledgment of its validity.
Hi Michael,
Definitely! My vision for this site is to expand it into lots of curated articles, by smart investors, on top of my own daily reports. Then discussion amongst the community.
Was got the ball rolling this weekend, with an excellent article in a very interesting niche of REITs.
Hi WShak,
Thanks for bringing this to our attention and great to see you’ll be posting on Paul’s Substack.
I already hold several REIT’s for this very reason and for the really attractive dividends. Progress can be slow at times and a lot of them are down due to interest rates not falling fast enough and far enough. Although the REIT’s are not like to fold and the dividends are high. I’m tempted to recycle some money into this one and hope for a decent fairly quick outcome, so I can repeat the process.
Thanks again, have a great weekend,
Graham.
You’re welcome, Graham.
There is loads of value in the REITs and IT sector, whether the companies are folding up or not. The situation has caused me to temporarily focus on equities again after years of specialising in the distressed debt market.
Thanks WShak,
There is a very good Investment Trusts thread on Stockopedia (subscription site, if you’re not aware) which is renewed each month. By that I mean the thread is restarted every month. There are some SS situations like this mentioned each month. There are also lots of IT trusts mentioned at huge 20-30%+ discounts to NAV. REIT’s also features heavily on the threads with the Mitchell’s (2 x posters) who are very knowledgeable and invest in lots of Trusts of all sorts. Hope to see you there sometime.
Thanks again, Graham.
Thanks Graham, I’m not a subscriber but may give it a look.
Hi simoan,
Great to hear from you!
You make a very good point.
In short, a similar situation arose very recently with API, another abrdn fund which decided to close itself down. Things have resolved themselves very quickly after they decided to liquidate, speeded up by the fact that they’ve accepted a takeover offer to speed things up. I was very pleased to see it, having invested earlier this year at 52p. The same Fund Manager is involved here, and they may well accelerate things again if approached.
Another one that has worked out really well is GABI, as the Board have done an excellent job in returning capital. I’m also invested in RESI recently as they have made a similar move to close themselves.
The point you make about Fundsmith being tardy is clearly valid (I know nothing about it though) but I did notice you said you only received the FINAL payment just recently.
I’ve tried to keep things simple with ASLI in the article, but recognise that the reality of the payback schedule will be more staggered. I think it’ll balance out though, and that’s why I’ve said I intend to track the idea to see how expectation matches up to reality.
One example I can give is that 0.77p will be returned very quickly purely as a dividend (it goes ex-div on Thursday) so, straight away, that’s a 1.3% return of capital, which is significant if comparing to gilts.
The other thing I’d say is that we are already 6 months into the process. It really should be wrapped up by the middle of next year so I think I’m being very conservative by giving it until the end of 2025. If the FINAL payment comes through later, I won’t mind that much as long as I have the majority of my money back long before then.
One final point. I haven’t seen the discussion on The Lemon Fool but I also bought some a while ago at 61p, and learned a lesson when the Board informed us that NAV would be reduced by 4.2% to cover the costs of winding down. They really should be able to reach 73p since it’s already been discounted to reflect costs so, again, they’d have to do poorly if not getting at least 70p when taking so long about things.
One of the reasons they gave when initially announcing a wind-down rather than cheap takeover was that they could see lease renewals on the horizon that would add value before selling. That makes sense to me, but they have to deliver on that to justify taking the extra time.
So far, I find their statements very straightforward, and am prone to give them some leeway.
Hi Wshak,
Nice to see you're still around searching for special situations. I remember when we all made out like bandits on UK and US listed bank prefs back in the day on TMF. There's been a thread on TLF since May I've been weakly following (which I assume is an offshoot of a thread on ADVFN) and the investment thesis has been pretty much the same for the past 6 months although the share price is slightly down from 62p when the thread started.
IMO it would be a much more attractive situation if someone just bought the whole damn company, obviously, as was the case with EBOX but that seems off the agenda for now. I agree the risk/reward looks good and it will be difficult to lose money, but as you make clear the timescale for disposal is crucial to the investment case when you can get 4.5% on short dated gilts.
I only mention this as I was burnt by the winding up of Fundsmith Emerging Equities Trust IT (FEET) which is a special situation I spotted in July 2022. You'd think an equity IT containing large liquid investments (albeit listed on overseas markets) would be pretty easy to wind up, especially with the boot of Terry Smith up its backside. BUT I only received the final payment two weeks ago! As you know, the time value of money is very important and I wish I'd sold the lot following the closing of the discount to NAV following the vote for discontinuation.
Is there any precedent for other REITs being broken up in this way rather than sold outright? If so, how long did that take? Anyway, I hope the timescale for asset disposals and return of capital works out for you.
Great to hear from you again!
All the best, Si
Reply above, substack playing up!
Excellent article and idea (both article and the introduction of guest writers!)
Thank you Waseem and Paul!!
Thank you, Jon
What a brilliant article, thanks Paul & author. Clear, simple explanation of the investment case in straightforward language. I love a good stock pitch and this is one of best I've seen in a while.
Thanks Joe
Super write-up, an actionable suggestion and a new investor to follow- this is exactly what I signed up for. Thanks Was and Paul
You’re welcome, Nyamen
Thanks for this Paul. Not the sort of area I invest in but it’s great to see you widening the scope of ideas in your new venture. Enjoy the rest of your weekend.
I see they list 22 properties across 5 countries so that will take a while to dispose of unless they can sell in packages. Sentiment in France for one is poor at present. The properties and tenants do look sound.
Presumably as they sell off properties the dividend will decline, or if maintained be uncovered.
The next ex-div date is Thursday, Dec 5th.
Not sure I have the patience for this wind down (my failing perhaps) but a clean take-out could be attractive.
Hi John,
I sort of alluded to this complication in the article, but quicker sales are to be welcomed as it just means they’ll return capital faster, giver a higher IRR.
They won’t wait until everything is sold before giving cash returns. They said in their latest update that they expected a first redemption in early 2025.
I wouldn’t worry about sentiment either - the NAVs have all been reduced heavily from their peak values already. They are basically selling at near the bottom of the market, which is why bigger players who have less disgruntled shareholders are buying.